Stamp Duty Land Tax & the Purchase of Residential Property

Author

Thomas Slipanczewski

A tax adviser, Thomas joined ETC Tax in September 2018.

Stamp Duty Land Tax and the Purchase of Residential Property – The Facts, New Rates & Reliefs

Stamp Duty Land Tax (SDLT) is payable on the purchase of a major interest in land or property in England and Northern Ireland (similar, yet different taxes apply in Wales and Scotland).

SDLT is a material, upfront cost on the purchase and in some circumstances may result in a significant amount of tax being payable. Further to this, there are a number of applicable rates and reliefs that apply in a variety of circumstances.

Therefore, anyone seeking to purchase land or property should seek specialist advice in relation to ensure the intended purchase is as efficient as possible.

Rates for Individuals Purchasing a Residential Property as a Main Residence

 

Consideration SDLT Rate
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1,500,000 10%
£1,500,000 + 12%

 

These rates only apply where the residential property is purchased by the purchaser as a main residence.

Main residence is not defined in statute; however, the court in Frost v Feltham [1981] 1 WLR 452 defined it as “the place where somebody lives”.

HMRC guidance states that main residence is a question of objective fact and the following (non-exhaustive) criteria are relevant, when considering this

  1. If the individual is married or in a civil partnership, where does the family spend its time?
  2. If the individual has children, where do they go to school?
  3. At which residence is the individual registered to vote?
  4. Where is the individual’s place of work?
  5. How is each residence furnished?
  6. Which address is used for correspondence?
  7. Where is the individual registered with a doctor / dentist?
  8. At which address is the individual’s car registered and insured?

Notably, this applies at the point of purchase. Therefore, a purchaser may change their mind at a later point without HMRC being able to levy any further tax (see next section), as long as the property was purchased as a main residence.

Rates for Individuals Purchasing a Second Residential Property

 

Consideration SDLT Rate
£0 – £125,000* 3%
£125,001 – £250,000 5%
£250,001 – £925,000 8%
£925,001 – £1,500,000 13%
£1,500,000 + 15%

*SDLT will not be payable where the consideration is less than £40,000

Where an individual purchases a second property, whether as a buy-to-let investment, or whether the individual has purchased a replacement property as their main residence and not yet sold their existing main residence, an additional 3% surcharge will be payable on the standard SDLT rates.

If the existing main residence is sold within 36 months of the purchase of the new replacement property, the taxpayer will be entitled to reclaim the 3% surcharge paid on the purchase of the second property.

Rates for Companies Purchasing a Residential Property

There are three potential SDLT rates that could apply:

Standard Rates:

 

Consideration SDLT Rate
£0 – £125,000* 3%
£125,001 – £250,000 5%
£250,001 – £500,000 8%

*SDLT will not be payable where the consideration is less than £40,000

Super Rate:

 

Consideration SDLT Rate
£500,000 15%

 

Where a company purchases a residential property for more than £500,000, a super rate of 15% is chargeable on all of the consideration payable.

Rates Applicable Where Super Rate Relieved:

 

Consideration SDLT Rate
£500,001 – £925,000 8%
£925,001 – £1,500,000 13%
£1,500,000 + 15%

*SDLT will not be payable where the consideration is less than £40,000

The super rate is relieved in certain circumstances, where the property is purchased exclusively for one of the following qualifying purposes:

  • The letting of the property for rents in the course of a qualifying property rentals business;
  • The resale of the property in the course of a property development trade;
  • The development or redevelopment of the property;
  • Making the property available to the public, for at least 28 days of the year;
  • A financial institution acquiring dwellings in the course of lending;
  • The acquisition of the property under a regulated home reversion plan;
  • The occupation of by certain employees from the business;
  • The occupation of a caretaker; and,
  • The purchase of a farmhouse as part of a farming trade;

Where the condition above is not satisfied for 3 years following the purchase of the property, the additional SDLT will be payable.

Recently in Consultus Care & Nursing Limited v HMRC [2019] UKFTT 437 (TC), the First-Tier Tribunal held that the purchase of the property must be exclusively for one of the qualifying purposes, listed above. Therefore, this relief will not apply where there is more than one purpose, even where a qualifying purpose is the main purpose of the purchase. Resultingly, the 15% super rate would be payable.

Multiple purchases of Residential Properties

Multiple Dwellings Relief (MDR)

MDR applies where, a purchaser is buying more than one property as part of a single transaction, arrangement or a series of transactions between the same vendor and purchaser. Prima facie, this would amount to ‘linked transaction’ and for SDLT purposes, this would be calculated on the basis of the overall consideration payable on the collective purchase. However, MDR enables the purchaser to calculate the SDLT payable based on the average price paid per property.

Purchases of 6 or more Residential properties

Where a company purchases 6 or more residential properties, the legislation provides that the properties will no longer be treated as residential properties and instead, the non-residential property rates will apply. The non-residential property rates are:

Consideration SDLT Rate
£0 – £150,000 0%
£150,001 – £250,000 2%
£250,001 + 8%

It is worth noting that this relief does not apply to properties where the 15%, super rate applies. However, where a number of properties are purchased and 1 or more are chargeable to the super rate, these can be counted as one (or more) of the 6 properties so the relief is applicable. Therefore, this relief would only apply to those properties that the super rate does not apply to, as long as there are 6 or more properties being purchased, collectively.

A taxpayer is free to choose which relief they would like to apply to their purchase. Therefore, taxpayers would be advised to calculate or take appropriate advice on the applicability of SDLT in light of both reliefs, so as to establish which is most efficient relief for SDLT purposes.

If you or your clients require assistance with the SDLT implications on the purchase of residential property, or any other tax issues, please contact us at info@etctax.co.uk or on Cheshire – 01925 363006, Manchester – 0161 711 1310 or London – 0203 7058320.

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